|What is Value Added Tax|
Value Added Tax (VAT) is a tax on consumer expenditure introduced in Kenya in January 1990 to replace Sales Tax, which had been in operation since 1973. VAT was introduced as a measure to increase Government revenue through the expansion of the tax base, which hitherto was confined to sale of goods at manufacturing and importation level under the sales tax system. VAT is levied on consumption of taxable goods and services supplied or imported into Kenya and is collected by registered persons at designated points who then remit it to the Commissioner. Registered persons only act as VAT agents in collecting and paying the tax since the tax is borne by the final consumer of goods and services.
The basic law is contained in the Value Added Tax Act, Cap. 476 of the Laws of Kenya and the Regulations stemming from it. Both the Act and the Regulations can be purchased from the Government Printers, Nairobi. The Act is also available on KRA Website-WWW.kra.go.ke
The Scope of Tax
Value Added Tax is charged on supply of taxable goods or services made or provided in Kenya and on importation of taxable goods or services into Kenya. Taxable goods and services are contained in the various schedules of the VAT Act. All goods and services are taxable except those excluded through the second and third schedules respectively.
The VAT Act constitutes the following schedules: -
I. 1stSchedule -Part1-Specifies the general rate of tax which is 16%
-Part 11-Taxable goods at the rate of 12%.
II. 2nd Schedule – EXEMPT GOODS- (Non-Taxable Goods) Goods that are not taxable. All other goods outside this schedule are taxable at either 0%, 12% or 16%.
III. 3rd Schedule -Lists the EXEMPT SERVICES. (Non-taxable Services) Services outside this list are taxable at either 0% or 16 %
IV. 4th Schedule –Repealed by Finance Act 2007
V. 5th Schedule -Part A--Zero-rated Supplies. These are supplies which attract VAT at 0%
VI. 6th schedule -Registration & deregistration procedures and changes affecting registration.
VII. 7th Schedule -Invoices, records and returns to be issued or maintained by a registered person.
VI. 8th Schedule-Part A-Public Bodies, privileged persons and institutions with Zero-rated status on imports and purchases.
-Part C-Zero-rating of goods and services imported or purchased by persons with diplomatic privileges.